Manipulation Prevention and Hedging Effectiveness_ Optimal Settlement Window Design for CSI 300 Stock Index Futures外文翻译.pdfVIP

Manipulation Prevention and Hedging Effectiveness: Optimal Settlement Window Design for CSI 300 Stock Index Futures Jun Song and Rui Luo ABSTRACT: This paper empirically evaluates the current 120-minute settlement window for China Securities Index 300 (CSI 300) Stock Index Futures. We assume that an exchange chooses the optimal settlement window to maximize its profit by increasing its revenue from trading volume and by curtailing its surveillance expenditure via designing contract specifications. Given that a longer settlement window may reduce the hedging effectiveness but result in cost saving, we find that the optimal settlement window is located between 0 and 40 minutes under varied unit investigation costs and suggest that it may be more appropriate to set a shorter settlement window. KEY WORDS: hedging effectiveness, manipulation risk, settlement specifications 1 Introduction The launch of China’s first stock index futures, the China Securities Index 300 (CSI 300) futures, is evidence of the dramatic progress in the ongoing reform of the Chinese financial system and thus has drawn much attention from both academic researchers and industry practitioners 1. As Stoll and Whaley (1997) argue, the selection of a settlement procedure by a futures exchange is one of the defining factors in the success of a given futures contract. In particular, the settlement window, defined as the length of the average period for contract settlement, potentially has a significant impact on futures market equity and efficiency. F